Beginning March 2026: Expanded Employer Liability and Bargaining Duties in Korea

In December 2025, Korea’s Ministry of Employment and Labor (MOEL) released draft Interpretive Guidelines following the September 9, 2025 amendment to the Trade Union and Labor Relations Adjustment Act (“Trade Union Act”), effective March 10, 2026. This amendment is widely known as the “Yellow Envelope Act,” which expands the definition of “employer” to include entities that, while not parties to the relevant employment contracts, exercise substantial and specific control over employees’ working conditions. The Act now will require such entities to collectively bargain within that scope. The Act also increases the bases for potential industrial action by labor unions by expanding the types of valid labor disputes.

These Guidelines provide practical criteria for: 

• Determining whether an organization falls within the expanded definition of “Employer” under the Yellow Envelope Act, which, as noted above, now includes non‑contractual employer/principals that exercise substantive, concrete control over working conditions; and
• Evaluating whether a particular issue or matter falls within the broadened scope of “Labor Dispute,” which now expressly covers business decisions that affect working conditions (such as layoffs or transfers), and an employer’s clear breach of certain collective agreement terms.

Criteria for Recognizing a Non‑Contracting Employer

Because the Yellow Envelope Act brought companies and other organizations that are not in direct contractual relationships with workers within the statutory definition of “Employer” (a “Non-Contracting Employer”) the Guidelines provide criteria for determining this status:

Structural Control over Working Conditions: Even without issuing direct instructions to individual workers, the Non-Contracting Employer can exert systematic and substantial control over them by implementing contractual terms, detailed work manuals, or automated systems that are applicable to the entire workforce. 

Examples of such structural control include:

• Workforce Management: Specifies or alters headcount, qualifications, or skill requirements for certain processes.
• Working Time: Decides on production schedules or shift systems that dictate subcontractor rosters and overtime patterns.
• Work Methods: Detailed standard operating procedures or centralized management systems that determine task allocation, sequences, and methods.

Structural control is relatively more likely to occur when the tasks of the Contracting Employer and the Non-Contracting Employer are closely interconnected or when the work processes are mutually dependent (such as in linked production lines).

Integration and Dependence – Supplementary Indicator

If the Contracting Employer’s business is systematically integrated into the Non-Contracting Employer’s business—such as when the Non-Contracting Employer functionally utilizes the labor of the relevant workers for its own business purposes—there is a high likelihood that the Non-Contracting Employer is in a position to exercise substantial control over work-related decisions.

More specifically, when the Contracting Employer relies on core equipment provided by the Non-Contracting Employer or is economically dependent due to exclusive or continuous business relationships, the Non-Contracting Employer is likely to hold a dominant position over the Contractual Employer and its workers. Conversely, if the Contracting Employer possesses high-level expertise or technology that is difficult to replace, or operates as a specialized service provider with multiple clients, economic dependency is unlikely.

Scope of Recognition of Non-Contracting Employers

The Guidelines also specify that a Non-Contracting Employer is not granted comprehensive employer status; rather, it is recognized as an employer only concerning specific working conditions over which it can exercise substantial and direct control. For example:

• Labor Safety – Recent court rulings emphasize that determining who bears obligations under the Industrial Safety and Health Act should not rely on formal criteria, but instead on who has the practical ability to control the structural causes of risk—i.e., “substantial control.” Furthermore, the fact that a Non-Contracting Employer responds to bargaining demands regarding labor safety, conducts negotiations, and implements agreements cannot, by itself, be considered an indicator of illegal dispatch under the Dispatch Act.¹
• Work Environment – When assessing employer status in relation to the work environment, factors to consider include whether the Non-Contracting Employer sets specific standards for the use of office space, warehouses, and break areas by the relevant workers—such as permissible zones, hours of use, and maximum occupancy—and whether the Contracting Employer is structurally compelled to comply with those standards.
• Benefits and Welfare – When assessing employer status in relation to benefits and welfare, consider whether the Non-Contracting Employer has a specific influence on the payment or level of performance bonuses and incentives for the relevant workers, or whether such payments are directly linked to evaluations or ratings determined by the Non-Contracting Employer (e.g., project assessments, performance indicators by process, customer satisfaction scores).
• Working Hours – Employer status is likely to be recognized when the Non-Contracting Employer substantially and specifically controls, determines, or exercises approval authority over production plans, work schedules, working hours, break times, and overtime (e.g., “10 workers for the night shift” or “two-shift operation on weekends”).
• Work Methods – If the Non-Contracting Employer only makes general demands regarding deadlines, quantity, or quality of deliverables, while leaving the specific operation of processes and methods of performing work to the discretion of the Contracting Employer (contractor), the likelihood that the Non-Contracting Employer will be regarded as an “Employer” is low (e.g., contracts in the form of volume-based outsourcing).
• Wages – When assessing employer status in relation to wages, consider factors such as whether the Non-Contracting Employer provides a wage table that fundamentally limits the Contracting Employer’s discretion in determining compensation for the relevant workers; whether the Non-Contracting Employer controls the criteria and amounts for various allowances (e.g., risk, special work, overtime); and whether labor cost adjustments are impossible without the Non-Contracting Employer’s explicit approval.

Labor Disputes

The Yellow Envelope Act increased the topics that are now recognized as legitimate bases for labor disputes. The Guidelines provide details on these changes:

Corporate Restructuring Decisions – Layoffs and job transfers that substantially change employee status or working conditions are now subject to collective bargaining under the amended Trade Union Act. Previously, courts and the Ministry of Employment and Labor viewed layoffs as purely managerial decisions that were outside the scope of collective bargaining. However, as of March 10, 2026, layoffs are recognized as decisions that significantly affect working conditions and must be included in collective bargaining.

Partial Business Closure or Sale – A decision to close or sell part of a business (e.g., a facility, department or workplace) would not itself constitute a substantial and specific impact on working conditions and therefore would not be subject to collective bargaining. However, if such a closure or sale leads to workforce adjustments—such as job transfers—and makes layoffs unavoidable, those measures become subject to collective bargaining.

Conclusion: Practical Steps for Employers

The Yellow Envelope Act and the Ministry’s draft Interpretive Guidelines mark a significant shift in Korea’s labor relations landscape. Employers—including companies that exercise structural control over workers employed by their contractors and subcontractors—must now anticipate expanded bargaining obligations and heightened scrutiny of subcontracting arrangements. Furthermore, business decisions once considered purely managerial, such as layoffs or workforce transfers during restructuring, are now firmly within the scope of collective bargaining. Companies should review their operational structures, subcontracting practices, and negotiation strategies to assess any risks and ensure compliance before the March 10, 2026 effective date.